UBS lifts its 2025 S&P 500 price target by 8%

Investing.com -- UBS has revised its year-end 2025 target for the S&P 500 to 6,400, representing an 8% increase from its previous forecast of 6,000. It also adjusted its 2024 target, now set at 5,850, slightly higher than the prior estimate of 5,600.

The bank’s strategists see a 9.2% upside over the next 15 months, driven by a combination of earnings growth and improving economic conditions.

UBS projects earnings per share (EPS) of $240, $257, and $275 for 2024, 2025, and 2026, respectively. These figures imply a growth of 9.1%, 7.1%, and 7%. For comparison, the consensus growth estimates for the next two years sit at 14.7% and 12.5%.

For economic growth, UBS economists forecast nominal GDP expansion of 3.7% in 2025 and real GDP growth of 1.6%, both in line with long-term averages.

The economic backdrop is further supported by the monetary policy outlook, with UBS expecting rate cuts to lower interest expense and default risk, providing a boost to both earnings and valuations.

Moreover, recession risks are perceived as lower, thanks to improved financial conditions and greater liquidity.

Strategists outlined several key factors that are expected to drive the S&P 500’s performance. They forecast 4.8% revenue growth in 2025, with 3.4% coming from nominal GDP and an additional 1.4% from the strength of the TECH+ sector.

Margins are also anticipated to remain stable, with no significant change outside of the TECH+ sector, which should contribute 0.6% margin expansion. Furthermore, lower interest rates are expected to add 0.2% to margin growth. Buybacks are projected to add 1.5% to EPS growth in 2025.

Strategists also foresee a slight rise in price-to-earnings (P/E) multiples.

“Valuations typically expand when the Fed cuts in non-recessionary environments. Despite elevated valuations, we expect P/Es to rise ½ multiple point,” they said in the note. UBS economists foresee a 250-basis-point reduction in rates.

As for potential downside risks to its outlook, UBS highlighted that if inflation reaccelerates, it could prompt the Federal Reserve to reconsider rate cuts. "While EPS remains strong, stocks derate," strategists said. 

Source: Investing.com